Collaborative Innovation: Shaping the Future with Corporate Venturing and Startups

Spring 2024 Conference Report

In this era of rapidly evolving, highly disruptive technologies, corporate venturing practices are evolving, too. High-profile partnerships like Microsoft’s $13 billion investment in OpenAI or BMW’s move into the electrification space with ChargePoint underscore the current shift in corporate venturing strategies. Companies are moving beyond financial investments to strategic partnerships that foster innovation, accelerate technological adoption, and help secure a competitive edge in the market. 

The Mack Institute’s Spring 2024 Conference, Collaborative Innovation: Shaping the Future with Corporate Venturing and Startups explored these issues, bringing together representatives from corporations, startups, and their intermediaries to examine both emerging models of collaboration and the competitive dynamics shaping today’s markets.  

The day-long discussion produced two main takeaways: (1) The increasing proliferation and diversity of corporate venturing practices drive and are driven by the evolution of tech-based innovation ecosystems, which emerge as primary foci of value creation in today’s world of capital-intensive general-purpose technologies. (2) Firms should embrace the diversity of corporate venturing practices: investments in existing startups, partnerships, M&A, venture building, and community development. The effort and resources allocated to each depend on multiple factors, including the maturity of the underlying technology, the firm’s competitive advantage, and the position it occupies within the innovation ecosystem. 

From “Creative Destruction” To “Coopetition” 

Valery Yakubovich (Executive Director, Mack Institute) kicked off the conference by asking what a new model of innovation for the Big Tech era might look like: a model that is neither the “creative destruction” of established companies and industries by nascent startups nor the slow-moving R&D process of incumbent firms. Citing academic work by Mack Institute co-director John Paul MacDuffie and coauthors, Yakubovich described this emergent model as “coopetition”: a complex interplay between incumbents, startups, and Big Tech that is characterized by multiple types of interactions (e.g. partnerships, M&As, alliances, and strategic entries by Big Tech) within an innovation ecosystem. 

“Coopetition,” a model of innovation for the Big Tech era, is a complex interplay between corporations, startups, and Big Tech that is characterized by multiple types of interactions.

To illustrate the full scope of engagements between corporations and startups, Yakubovich shared initial findings from an ongoing Mack Institute Corporate Venturing project which examines how the top 500 global companies interact with startups. The full results from this study will be released in the fall of 2024, but, in the meantime, you can see the full breakdown of our preliminary findings here.  

Current Trends in Corporate Venture Capital 

Corporate Venture Capital (CVC) has long been a key component of many corporations’ innovation and growth strategies. Yet while CVC is often thought of as the “traditional” model of corporate venturing, it has nevertheless undergone  significant evolution. Recent trends include an increased interest in strategic alignment over financial returns, a greater willingness to make investments in bleeding-edge technologies like blockchain and AI, and a focus on building ecosystems. 

Greg Bergamesco, Stefon Crawford, Tereza Nemessanyi, Serguei Netessine (moderator) 

Our first panel brought together three representatives to discuss these trends and their effect on the overall CVC landscape. They all identified what Stefon Crawford (Partner, GM Ventures) described as “megatrends”: hot technologies like AI and vehicle electrification that capture widespread attention and fuel competitive investments. In particular, AI was emphasized as the most important of these megatrends, with panel moderator Prof. Serguei Netessine (Wharton) quipping, “Everything comes down to AI.”  

Tereza Nemessanyi (Worldwide Partnerships Lead, Private Equity and Venture Capital, Microsoft) spoke about Microsoft’s shift away from taking equity from the startups they work with in favor of building ecosystems and partnerships based on mutual learning—a strategy she says has led to direct improvements in Microsoft’s own products. 

“Great early-stage companies have the best engineers in the market, and if they’re using Microsoft tools to build, that pushes our platforms forward,” she said. “For example, if I bring a startup to Azure [Microsoft’s cloud computing platform], and they break Azure, that’s really a good thing. It’s helpful data for our senior engineers.” 

Greg Bergamesco (Managing Director, Touchdown Ventures) shared a slightly different perspective, saying that he observed a turn towards more conservative investing, a reaction against “the sheer amount of capital that is in the ecosystem.” 

“There is an unprecedented amount of venture capital that is fueling startups both domestically and internationally,” he explained. “We’re starting to see a return to more conservative business practices over the last 12-18 months, but funding rounds had gotten out of control.” 

Crawford agreed with the assessment, saying that the CVC world tends to become more “introspective” in times of market cooldown. 

“Whenever the market cools, there’s a reflection period where things aren’t as fast-paced,” he said. “People ask questions and take a closer look at what you’ve been doing. But, in the venture capital world, there’s always a dichotomy: is it short-term strategic value that you’re going to get right now, or is it long-term innovation and trend setting? It’s a balancing act.” 

Another topic that was repeatedly raised was the importance of personnel and building ecosystems. Nemessanyi shared an illustrative statistic from her work at Microsoft: that for every dollar of the tech giant’s Azure Cloud system they sell directly, they sell ten more through their partners. 

For every dollar of Azure that Microsoft sells directly, they sell ten more through their partners.

“The ecosystem is the growth engine,” she said. “We set up partnerships on whatever scale is appropriate for the startup in question—for example, if they’re building rocket ships, we want our stuff in the rocket ship. We want our growth to be completely aligned and we want our partners to feel as if they have an ‘unfair advantage’ in working with us.” 

Panel moderator Prof. Serguei Netessine (Wharton) echoed these sentiments as he wrapped up the panel.  

“A big takeaway for me is that cash investment and financial performance of CVC is just a small piece of the puzzle” he summarized. “It’s much more about aligning with strategic goals of the company—that’s the biggest goal of CVC. Benefits are not purely financial, and a lot of it is about creating an ecosystem.” 

Beyond CVC: Venture Clienting and Venture Building 

Venture clienting and venture building have both grown in popularity in recent years as corporations seek agile and effective ways to engage with startups and innovation ecosystems beyond financial investments. The former implies engaging with a startup as a commercial partner, the latter implies designing a startup from scratch to meet a specific corporate need. These methods go “beyond CVC” by building on traditional R&D and M&A strategies to stay competitive in rapidly evolving industries.  

David Charpie, Youssef Kalad, Hari Pujar, Gary Dushnitsky (moderator) 

“As somebody who’s been working on this topic for over 20 years, I’ve seen an evolution from corporate venture capital to corporate venturing to corporate building and other forms,” said panel moderator Prof. Gary Dushnitsky (London Business School). “This evolution has empowered diverse organizations to harness startups in a way that’s valuable for them.” 

“As somebody who’s been working on this topic for over 20 years, I’ve seen an evolution from corporate venture capital to corporate venturing to corporate building and other forms.”

Our second panel explored the various forms that these new venture clienting and building models can take. Hari Pujar (Operating Partner, Flagship Pioneering) described how, over the past ten years, his company moved from classic venture capital investing in the biotech space to a new model that brings everyone “to the same side of the table.” He explained that, in the biotech space, there are “three players” involved: the investor (venture capitalist), the entrepreneur (who wants to start this business) and the inventor (in the case of biotech, usually a university professor). However, there is often an “asymmetry” involved, and the three players are less likely to agree on strategy as the business grows. 

“After having experienced this dynamic for over 10 years, Noubar [Afeyan, Flagship’s CEO] decided, why don’t we put all three parties on the same side of the table—the entrepreneur, the investor, and the inventor?” explained Pujar. “We start with a large number of ideas that we call ‘explorations’, then whittle it down to protocols where we spend $1 or $2 million, and then whittle that down further to new companies.” 

This model has led to many success stories for Flagship, including, most famously, Moderna. Pujar shared that Moderna’s prior work with BARDA on a Zika vaccine helped them build “an operating system that paid dividends when the real pandemic [COVID] hit.” 

Youssef Kalad (Investor, AlleyCorp) described how he uses venture building strategies to address gaps in the market and target specific pain points and problems. He gave the example of building the green tech workforce: Kalad has a particular interest in this issue and wants to invest in relevant startups. However, he has found that the market is falling short.  

“I’ve probably seen 200 company pitches at this point,” he said. “After you see 200 and don’t invest in any, you wonder if your thesis is wrong, or if other people are not finding useful and effective solutions.”  

“That’s often where this ‘build vs. invest’ question comes up,” he continued. “If we still think this is an important problem, maybe we should be the ones to build a startup to address it. And if it’s outside of our comfort zone, we need to find someone with the right profile to come in and build it. In [the green tech example], maybe I’m looking for someone with a background in engineering who’s been at a big corporate and maybe has trained frontline technicians at Tesla or Toyota.”  

David Charpie (Co-CEO, Mach49) laid out a different model that focuses on venture building from within established firms, such as Google’s “Other Bets” program. One key difference he emphasized between the corporate innovators he works with and VCs was a reduced tolerance for risk. 

“In general, companies are reluctant to take risks,” he said. “If a venture capitalist has a portfolio of 20 things, it might only take 2 of those to return to get the money back. That’s a win. But if I’m inside of a corporation, that ratio would be unacceptable. No corporation in the world is going to let me get away with that. I have to find a way to be more successful.” 

Charpie believes that the way to deal with this reduced capacity for risk is to find the “unfair advantage” that the established company has, echoing the phrase that Tereza Nemessanyi used to describe what Microsoft brings to its startup partners. Only by taking stock of company resources like finances, personnel and strategic advantage, as well as the market as a whole, can firms determine whether they should build, buy, partner, or invest.  

“I only do a build when I know there’s space for me to play,” Charpie explained. “I have to make sure there aren’t already people out there with billion-dollar investments who are going to kill me…[On the other hand], if you’ve got a market that’s well penetrated, you ought to be thinking about CVC. You shouldn’t be thinking about doing a build. Go buy somebody, or go invest in somebody, or go partner with somebody. That decision should be based on the ultimate strategic goal you’re after.” 

How Corporations Cultivate Entrepreneurial Communities 

In addition to relationships with individual startups, corporations also cultivate various forms of entrepreneurial communities, ranging from incubators and accelerators to ecosystems and platforms. Accelerator programs like Techstars and Y Combinator have launched giants like Airbnb, Dropbox, and Stripe, and mega corporations like Microsoft and Google are increasingly looking to foster entire ecosystems, creating a symbiotic environment where startups, investors, and larger companies can collaborate and thrive. 

Ankur Jindal, Katie Nash, Laura Plunkett, Valentina Assenova (moderator) 

Our third panel explored how these symbiotic environments can be cultivated and maintained, as well as best practices for fair and productive corporate-startup partnerships. Laura Plunkett (Executive Director of Startup Engagement and Head of LIFT Labs, Comcast NBCUniversal) cautioned that some efforts to create entrepreneurial communities can easily turn into “innovation theater” if not thought about strategically. 

“In order for the model to work, we have to pick the startups that our colleagues most want to work with to ensure both the startups and the enterprise realize value,” she said. “We aim to deliver pretty near-to-midterm value, or even in-year payback, in the case of some of the AI startups we’re working with.”   

Ankur Jindal (VP & Global Head of Venturing, Technology and Innovation, Tata Communications) shared strategies for being a “responsible corporate citizen” to other members of the entrepreneurial community. For example, Tata prioritizes explicit clarity in its relationships with startups over issues like IP ownership, development, and marketing.  

“Trust builds with the ecosystem,” he said. “The other players in the ecosystem will only engage with you if they trust you.” 

Jindal also spoke about solutions Tata has developed to work more agilely in the fast-paced startup world, something which is especially important in heavily regulated industries like communications technology (Tata’s sector) and healthcare. 

“The other players in the ecosystem will only engage with you if they trust you.”

“How can we get from a concept to a contract partnership in three months?” he asked. “We’ve worked with our legal team to simplify contracting for startups. We don’t need a 100-page MSA. We can do a one-page NDA, and a three-page GTM partnership contract. The workflow is managed through an inhouse developed platform. Startups have limited resources, and they’re under VC pressure to scale fast. We want to make it easier and less intensive on all sides.” 

Katie Nash (Senior Director, External Affairs, University City Science Center) discussed how entrepreneurial communities which are geographically bound within a city, state, or other region, can flourish: 

“How do we take the ‘ingredients’ that are in the kitchen and bake something with them?” she asked. “Here in Philadelphia, for example, we have all these resources, but more startups could be forming and the companies that form could grow more and faster. How do we create a system in which it’s easier for innovation to take place?” 

Nash believes that one underutilized tool for helping regional entrepreneurial ecosystems grow is seeking out government funding. She cited massive federal investments such as the Economic Development Administration’s Tech Hubs program or ARPANET-H which directs $1.5 billion to healthcare innovation nationwide. 

“How do we, as a region, play in this space?” she asked. “It can’t happen without all the players—all the ‘ingredients in the kitchen,’ so to speak. You need the early-stage investors, the later-stage investors, corporate partners, academic institutions that provide that technology, the startups. These are the stakeholders needed for entrepreneurial communities to flourish.” 

Key Takeaways & Wrapping Up 

The conference provided insight into many diverse models of collaboration between startups and incumbent firms, but certain key themes resurfaced again and again.  In particular, many speakers underscored the shift in focus from solely seeking financial returns to prioritizing learning, strategic alignment, and ecosystem building. This is especially important when it comes to bleeding-edge technologies, where both the agility of the startup and the ability of the incumbent to serve as a stable “mothership” are required. 

The question of whether to “build or buy” was also discussed at length. Various factors—including finances, personnel and the market as a whole—should be analyzed, and the decision should reflect each player’s strategic goals. Firms, startups, and VCs should also understand their own capacity to take on risk, and the timeline required for experimental ventures to turn a profit. 

Finally, the conference also explored the practical aspects of these collaborations, emphasizing the need for agility and streamlined processes. Simplified legal frameworks, faster contract times, and strategic alignment of corporate-startup interactions are crucial for efficacy and speed. Additionally, trust-building and responsible corporate citizenship are vital for maintaining what can sometimes be tenuous links between different players. Several speakers cited the ideal of each player feeling like they have an “unfair advantage” due to their partnership as the highest goal. 

“We used to think about corporate innovation as an in-house project with opportunities and challenges very different from those faced by startups,” said Yakubovich. “However, today’s disruptive technologies are so complex and capital intensive that neither corporations nor startups can deal with them alone. Instead, they create and capture value in a variety of engagements with each other within an encompassing innovation ecosystem. The conference and Mack Institute’s ongoing study shed a new light on these engagements and thus help us better understand corporate venturing and improve the practice of innovation management in the long-run.” 


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